Transcript Hansen and Mowen - Gunadarma University

ADVANCED MANAGEMENT
ACCOUNTING
PPT 14 -1
Activity Based Management
PPT 14 -2
Activity-Based Management (ABM)
Activity-based management (ABM) is a
systemwide, integrated approach that focuses
management’s attention on activities with the
objective of improving customer value and the
profit achieved by providing this value.
Activity-based management encompasses
both product costing and process value
analysis.
PPT 14 -3
Activity-Based Management Model
Cost Dimension
Resources
Process Dimension
Driver Analysis
Why?
Activities
What?
Performance Measures
How Well?
Products and
Customers
PPT 14 -4
Process Value Analysis
Process value analysis is fundamental to activitybased responsibility accounting, focuses on
accountability for activities rather than costs, and
emphasizes the maximization of systemwide
performance instead of individual performance.
Process value analysis is concerned with:
Driver analysis
Activity analysis
Performance measurement
PPT 14 -5
Activity Analysis
Activity analysis should produce four outcomes:
What activities are performed?
How many people perform the activities?
The time and resources required to perform the activities.
An assessment of the value of the activities to the organization,
including a recommendation to select and keep only those that
add value.
PPT 14 -6
Value-Added Activities
A discretionary activity is classified as value-added
provided it simultaneously satisfies three conditions:
The activity produces a change of state.
The change of state was not achievable by preceding
activities.
The activity enables other activities to be performed.
PPT 14 -7
Nonvalue-Added Activities
Nonvalue-Added Activities are activities that add cost and impede
performance.
Scheduling
Moving
Waiting
Examples
Inspecting
Storing
PPT 14 -8
Activity Analysis
Activity Analysis Can Reduce Costs in Four Ways:
Activity elimination
Activity selection
Activity reduction
Activity sharing
PPT 14 -9
Activity Performance Measurement
Three Dimensions of Activity Performance
 Efficiency
 Quality
 Time
PPT 14 -10
Measures of Activity Performance
Financial measures of activity
efficiency include:
Value and nonvalue-added
activity cost reports
Trends in activity cost reports
Kaizen standard setting
Benchmarking
PPT 14 -11
Value- and Nonvalue-Added
Cost Reporting
Consider the following data:
Activity
Activity Driver
SQ
AQ
SP
Welding
Welding hours
10,000
8,000
$40
Rework
Rework hours
0
10,000
9
Setups
Setup hours
0
6,000
60
Inspection
# of inspections
0
4,000
15
PPT 14 -12
Value- and Nonvalue-Added
Cost Report (continued)
Activity
ValueAdded Costs
NonvalueAdded Costs
Actual Costs
Welding
$400,000
$ 80,000
$480,000
Rework
----
90,000
90,000
Setups
----
360,000
360,000
Inspection
----
60,000
60,000
$400,000
$590,000
$990,000
Total
========
========
========
PPT 14 -13
Trend Report: Nonvalue-Added Costs
Activity
Nonvalue-Added Costs
2000
2001
Change
Welding
$ 80,000
$ 50,000
$ 30,000
Rework
360,000
200,000
160,000
Setups
90,000
70,000
20,000
Inspections
60,000
35,000
25,000
$590,000
$355,000
$235,000
Total
========
========
========
PPT 14 -14
The Role of Kaizen Standards
Kaizen costing is concerned with
reducing the costs of existing
products and processes.
Controlling this cost reduction process is
accomplished through the repetitive use
of two major subcycles:
(1) the kaizen or continuous improvement
cycle, and
(2) the maintenance cycle.
PPT 14 -15
Improving Performance Through
Benchmarking
Organization A
Cost of Processing a
Purchase Order is
$20
Share
Information
Organization B
Cost of Processing a
Purchase Order is
$15
How do we improve?
PPT 14 -16
Activity-Based Budgeting
Activity flexible
budgeting is the
prediction of what
activity costs will be as
activity output changes.
PPT 14 -17
Flexible Budget: Direct Labor Hours
Cost Formula
Direct Labor Hours
Fixed
Variable
10,000
20,000
Direct materials
---
$10
$100,000
$200,000
Direct labor
---
8
80,000
160,000
$ 20,000
3
50,000
80,000
Machining
15,000
1
25,000
35,000
Inspections
120,000
---
120,000
120,000
50,000
---
50,000
50,000
220,000
---
220,000
220,000
$425,000
=======
$22
===
$645,000
=======
$865,000
=======
Maintenance
Setups
Purchasing
Total
PPT 14 -18
Activity Flexible Budget
Driver: Direct Labor Hours
Formula
Level of Activity
Fixed
Variable
10,000
20,000
Direct materials
---
$10
$100,000
$200,000
Direct labor
---
8
80,000
160,000
$0
==
$18
===
$180,000
$360,000
Subtotal
Driver: Machine Hours
Maintenance
Machining
Subtotal
Fixed
Variable
8,000
16,000
$20,000
$5.50
$64,000
$108,000
15,000
2.00
31,000
47,000
$35,000
======
$7.50
====
$95,000
$155,000
PPT 14 -19
Activity Flexible Budget (continued)
Driver: Number of Setups
Inspections
Setups
Subtotal
Fixed
Variable
25
30
$80,000
$2,100
$132,500
$143,000
---
1,800
45,000
54,000
$80,000
======
$3,900
=====
$177,500
$197,000
Driver: Number of Orders
Purchasing
Total
Fixed
Variable
15,000
25,000
$211,000
=======
$1
==
$226,000
$236,000
$678,000
=======
$948,000
=======
PPT 14 -20
Activity-Based Performance Report
Actual Costs
Direct materials
Budgeted Costs
Budget Variance
$101,000
$100,000
Direct labor
80,000
80,000
---
Maintenance
55,000
64,000
9,000 F
Machining
29,000
31,000
2,000 F
Inspections
125,500
132,500
7,000 F
46,500
45,000
1,500 U
220,000
226,000
6,000 F
$657,000
=======
$678,500
=======
$21,500 F
======
Setups
Purchasing
Total
$1,000 U
PPT 14 -21
Variances for the Inspection Activity
Activity
Actual Cost
Budgeted Cost
Variance
Inspection:
Fixed
Variable
Total
$ 82,000
$ 80,000
$2,000 U
43,500
52,500
9,000 F
$125,500
=======
$132,500
=======
$7,000 F
=====
PPT 14 -22